Bank of America has increased its price target for Encompass Health (EHC, Financial) shares, setting it at $128, up from the previous target of $125, while maintaining its Buy rating. The decision follows yet another period of exceeding expectations and improved projections from Encompass Health.
The analyst highlighted Encompass Health's consistent outperformance, suggesting that the company's traditionally cautious approach to forecasting is likely to result in further upward revisions throughout the year. In light of the company's strong results, the financial institution has also adjusted its estimates to reflect the recent positive developments.
EHC Key Business Developments
Release Date: February 07, 2025
- Revenue: Increased 12.7% to $1.4 billion.
- Adjusted EBITDA: Increased 13.6% to $289.6 million.
- Adjusted EPS: Increased 23.2%.
- Adjusted Free Cash Flow: Increased 103.7% to $190.5 million for Q4, totaling approximately $690 million for the full year, a 31.3% increase from 2023.
- Total Discharge Growth: 7.8% for the quarter.
- Same-Store Discharge Growth: 5.8%.
- Net Revenue per Discharge: Increased 4.2%.
- Medicare Discharge Growth: Increased 6.8%.
- Medicare Advantage Discharge Growth: Increased 14.7%.
- Managed Care Discharge Growth: Increased 8.9%.
- Stroke Discharges: Increased 12.6%.
- Neurological Disorders Discharges: Increased 7.7%.
- Bad Debt Expense: Decreased by 200 basis points to 2.1%.
- Salaries and Wages per FTE: Increased 4.8%.
- Benefits Expense per FTE: Increased 30.6% for Q4 and 12.4% for the full year.
- Premium Labor Costs: $29.7 million in Q4, a decrease from $30.9 million in Q4 '23.
- Net Leverage: Reduced to 2.2 times at year-end 2024.
- 2025 Guidance - Net Operating Revenue: $5.8 billion to $5.9 billion.
- 2025 Guidance - Adjusted EBITDA: $1.16 billion to $1.20 billion.
- 2025 Guidance - Adjusted EPS: $4.67 to $4.96.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 12.7% to $1.4 billion, with adjusted EBITDA up 13.6% to $289.6 million.
- Adjusted EPS rose by 23.2%, and adjusted free cash flow increased by 103.7%.
- Total discharge growth for the quarter was 7.8%, with strong performance across patient mix, payers, and geographies.
- Encompass Health Corp (EHC, Financial) opened 36 new hospitals and added 474 beds from 2020 to 2024, increasing total bed supply by approximately 20%.
- The company plans to open seven new hospitals and add approximately 100 beds to existing hospitals in 2025, with significant expansion in Florida.
Negative Points
- Group medical and prescription drug costs are expected to remain elevated through the first half of 2025.
- The company faces challenges with pre-authorization requirements by Medicare Advantage plans, impacting access to care.
- There is a potential risk of increased construction costs and tariffs affecting future expansion plans.
- The 2025 guidance includes anticipated startup and ramp-up costs, which may impact EBITDA margins.
- Provider tax benefits in 2024 may not recur in 2025, adding uncertainty to financial projections.
